TOKYO – Japan’s biggest companies agreed to raise wages by 5.28 per cent for 2024 – the highest in 33 years – the country’s largest union group said on March 15, reinforcing views that the central bank will soon shift away from a decade-long stimulus programme.

The stronger-than-expected result comes as the Bank of Japan looks close to ending eight years of negative interest rate policy. Bank officials have stressed the timing of a pivot would depend on the outcome of 2024’s annual wage negotiations.

Policymakers hope that hefty pay rises will boost household spending and produce more durable growth in the broader economy, which narrowly avoided slipping into recession in late 2023.

Workers at major companies had asked for annual increases of 5.85 per cent, topping the 5 per cent mark for the first time in 30 years, according to the Japanese Trade Union Confederation, or Rengo.

Rengo, which represents about seven million workers, many at large companies, had set its eyes on hikes of more than 3 per cent of base pay – a key barometer of wage strength as it determines wage curves that provide the basis of bonuses, severance and pensions.

Analysts had expected a rise of more than 4 per cent, after 2023’s 3.6 per cent, itself a three-decade high.

Rengo chief Tomoko Yoshino said at a press conference that rising income inequality, inflation and a labour crunch were among the factors behind the big increase, adding that part-time workers would see pay hikes of 6 per cent this fiscal year.

Ms Yoshino said the country was at a critical stage in a shift towards economic revival.

The government is counting on such wage hikes to trickle down to small and medium-sized firms, which account for a whopping 99.7 per cent of all enterprises and about 70 per cent of the country’s workforce. Many, however, lack the pricing power to pass higher costs on to their customers.

Wage talks for most smaller companies are expected to conclude by the end of March, and any increments are likely to come in lower than those agreed by major companies.

Even though Japanese businesses have been raising pay, the increases have largely failed to keep up with inflation. Real wages, which are adjusted for inflation, have now fallen for 22 straight months.

Labour shortages

At the labour talks, one strong showing emerged after another, led by Toyota Motor, the bellwether of annual talks, which unveiled its biggest pay increase in 25 years.

The strong wage hikes are likely to boost expectations that the central bank will end negative interest rates as early as its next policy-setting meeting on March 18 and 19.

Japanese businesses are facing a chronic labour shortage due to an ageing and dwindling pool of workers.

Prime Minister Fumio Kishida is pushing companies to raise salaries to help Japan shake off years of deflation and put an end to meagre wage growth that has kept well behind the average for the Organisation for Economic Cooperation and Development grouping of rich countries.

The annual pay negotiations – called shunto or spring labour offensive – are one of the defining features of Japanese business, where relations between labour and management tend to be more collaborative than in some other countries. REUTERS